History Says to Buy June Calls on Advanced Micro Devices Stock

However, July tends to be tough for the chip stock

Jun 5, 2018 at 11:36 AM
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Advanced Micro Devices, Inc. (NASDAQ:AMD) has been one of the most volatile stocks on the S&P 500 Index (SPX) in the summer months in the past 10 years, per data from Schaeffer's Senior Quantitative Analyst Rocky White. And while AMD's average return over the June-through-August period has been negative 6.37%, most of these losses are accumulated in July. With AMD stock potentially flashing a short-term bullish signal, it could be a prime time to buy June calls on the surging chipmaker.

Since skimming the $9 mark back in April, AMD shares have rallied more than 63% to trade at $14.78, breaking through long-term resistance in the $13.75-$14.50 region. The stock topped out at $14.98 yesterday -- its highest perch since last summer -- and is currently trading within 5.8% of its July 26 decade peak at $15.65.

amd stock price chart on june 5

At the same time, front-month implied volatilities on the stock are pricing in extremely low volatility expectations at the moment -- pointing to relatively cheap options premiums. More specifically, AMD's Schaeffer's Volatility Index (SVI) of 40% ranks in the 6th percentile of its annual range.

According to White, there have been four other times since 2008 that Advanced Micro Devices stock was trading near its 52-week peak while its SVI was docked in the lower fifth percentile of its 12-month range. After these previous signals, the equity was up 21.68%, on average, one month later, boasting a 100% win rate. Another move of this magnitude would put the security near $18 for the first time since early 2007, based on its current perch.

There's plenty of skepticism priced into AMD shares, too, which could create fuel for a bigger rally. In addition to being heavily shorted, the chip stock has 12 of 23 "hold" or "strong sell" ratings levied toward it. Plus, the average 12-month price target of $14.31 is a discount to present trading levels. Upgrades and/or price-target hikes could draw more buyers to the table.

Looking ahead, though, July could be a rough month for Advanced Micro Devices. Over the past 10 years, the stock has averaged a monthly loss of 4.64%, and has finished the month in positive territory less than half the time.

 

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